How Christian Investors Screen Companies for Biblical Values

For many Christian investors, investing isn't only about financial returns. It's also about stewardship: considering whether the companies they own align with their biblical values.

But how does faith-based investing actually work? How do Christian investment funds decide which companies to include or exclude? And how is faith-based investing different from ESG investing?

The answer often starts with a process known as faith-based screening.

What is faith-based investment screening?

Faith-based investment screening evaluates companies based on their products, services and business practices to determine whether they meet a particular set of Christian investment guidelines.

Different Christian funds and investment managers use different standards. However, many seek to avoid companies that generate significant revenue from activities they believe conflict with biblical values.

This is commonly called negative screening because certain companies or industries are removed from the investment universe.

Other faith-based investment strategies go a step further by looking for companies whose products, services or business practices contribute positively to human flourishing.

What companies do Christian investment funds commonly avoid?

The specific screens vary by investment manager, but Christian investment funds may restrict or exclude companies involved in areas such as:

• Abortion: Companies materially involved in abortion services or products. An example of a company that could be excluded is a pharmaceutical company that manufactures contraceptives.

• Pornography and adult entertainment: Businesses that produce or distribute sexually explicit content.  Example of a company typically excluded would be RCI Hospitality which through its subsidiaries, operates strip clubs.

• Gambling: Casinos, online gambling platforms and other companies deriving significant revenue from gambling.  Companies commonly excluded are MGM, DraftKings, Caesars, and FanDuel (Flutter Entertainment) to name a few.  Gambling has grown to do $64B in revenue over the past 12 months with many men in the 18-35 age bracket showing signs of addiction.

• Tobacco: Manufacturers and, depending on the screening methodology, distributors of tobacco products. Easy example of exclusion would be Philip Morris and Altria.

• Alcohol: Some Christian investment strategies restrict companies significantly involved in producing or distributing alcoholic beverages.

• Other areas of concern: Depending on the investment manager's biblical framework, additional issues may also be considered.

Importantly, faith-based screening isn't always as simple as excluding an entire industry. Investment managers may establish revenue thresholds or evaluate a company's degree of involvement in a particular activity.

That means two Christian investment funds can reach different conclusions about the same company.

How is faith-based investing different from ESG investing?

Faith-based investing and ESG investing can overlap, but they begin from different foundations.

ESG stands for Environmental, Social and Governance. ESG analysis considers issues such as environmental practices, employee treatment, corporate governance, executive compensation and other factors that may affect a company or its stakeholders.

Christian faith-based investing, on the other hand, begins with biblical convictions. The objective is to evaluate investments through a Christian worldview and determine whether owning a company is consistent with the investor's beliefs about stewardship.

There may be areas where ESG and Christian investment criteria agree. But they shouldn't be considered interchangeable.

For a Christian investor, the fundamental question isn't simply, “Does this company meet a particular ESG standard?”

It's closer to: “Is this company providing human flourishing for the world God has made or is it hurting others?”

Does faith-based investing hurt investment returns?

One concern we often hear is whether screening companies out of a portfolio necessarily means sacrificing investment performance.

Faith-based screening does reduce the number of investments available. But the global investment universe contains thousands of companies across numerous industries, countries and market sectors.

As a result, it is possible to construct a broadly diversified portfolio while incorporating Christian investment screens.

That doesn't mean a faith-based portfolio will always outperform or underperform a portfolio without those screens. Different screening methodologies can affect performance differently depending on market conditions and which companies or sectors are excluded.

The goal is to develop an investment strategy that appropriately balances an investor's financial objectives, risk tolerance and biblical convictions.

How do I start investing according to Christian values?

A good first step is deciding which issues matter most to you.

For example, you might ask:

• Are there certain business activities I don't want to profit from?

• Which biblical values do I want reflected in my investments?

• How strict do I want the screening process to be?

• Do I want to simply avoid certain companies, or do I also want to intentionally invest in companies making a positive impact?

• How does corporate engagement factor in?  If screening is too strict, how will this hinder the ability to engage for positive change?

• How will these screens affect the diversification, risk and cost of my portfolio?

There isn't necessarily one Christian investment screen that's appropriate for every Christian investor.

At Strategic Stewardship, we help clients think through these questions and understand the investment options available to them.

If you'd like to explore how your investments can better align with your Christian faith, contact a Strategic Stewardship advisor. We can help you evaluate your current portfolio and develop an investment strategy designed around your financial goals and biblical convictions.

The returns on a portfolio consisting of primarily Faith Based investments may differ from a portfolio that is more diversified or where decisions are based solely on investment considerations.